Foreign direct investments (FDI) are a major driving force behind the growth of Indian financial markets. Post liberalisation in 1990s, the country is being viewed as a strategic destination by foreign majors to park their investments and benefit from the economic growth.
India remains the world's third most attractive destination for investment by transnational corporations (TNCs) during 2013-15, stated a recent survey by UNCTAD. The country was ranked after china and the US in the survey based on responses of 159 companies.
Moreover, this economic segment enjoys high attention from top officials of the Government, owing to its strategic importance. The Government keeps making efforts to provide impetus to FDI flows in the country and hence undertakes numerous reform initiatives. FDI norms were further liberalised after September 2012 in sectors like civil aviation, power exchanges and retail. The Ministry of Finance has also suggested modifications in FDI caps for various sectors, including tea, media, natural gas and petroleum.
India Inc witnessed an increase of 25 per cent year-on-year (y-o-y) to record US$ 2.32 billion of FDI in April 2013. Sectors that attracted highest levels of FDI include hotels and tourism sector (US$ 2.32 billion), followed by pharmaceuticals (US$ 987 million), services (US$ 238 million), chemicals (US$ 51 million) and construction sector (US$ 32 million).
Singapore alone infused FDI flows worth US$ 1.29 billion in April 2013, followed by Mauritius, the Netherlands and the US with FDI inflows worth US$ 355 million, US$ 173 million and US$ 149 million respectively. FDI inflows aggregated at US$ 22.42 billion in 2012-13.
India's foreign exchange (forex) reserves stood at US$ 280.167 billion for the week ended July 5, 2013, according to data released by the central bank. The value of foreign currency assets (FCA) - the biggest component of the forex reserves – stood at US$ 252.103 billion, according to the weekly statistical supplement released by the Reserve Bank of India (RBI).
Private equity (PE) firms upped their investments in India Inc by a hefty 42 per cent to US$ 5.4 billion through 197 deals during the first half of 2013; major deal being the US$ 1.2 billion-Bharti Airtel deal, according to a report by EY India (formerly Ernst & Young).
Meanwhile, Merger and acquisition (M&A) activity in India was also quite intense in April-June 2013 period. The deal tally stood at US$ 10.9 billion across 130 transactions, according to global deal tracking firm Mergermarket.
Foreign Investment Promotion Board (FIPB) has granted approvals to various FDI proposals recently.
Telenor Mobile Communication AS, has been given a nod to invest Rs 1,000 crore (US$ 168.53 million) to raise its stake in Telewings to 74 per cent while Mahle Holding India Ltd has been allowed to bring Rs 280 crore (US$ 47.2 million) into the country. On the other hand UK-based Aveva Solutions Ltd’s proposal for setting up a Limited Liability Partnership (LLP) for software development by investing Rs 8.39 crore (US$ 1.41 million) has been granted a green signal by the FIPB.
Bangladeshi Rabiul Alam also aims to set up a new company in India with 100 per cent FDI to manufacture engineering products by investing Rs 20.28 crore (US$ 3.42 million). This proposal has also got a nod from the FIPB.
The aromatic basmati rice industry is attracting increasing investor interest in India. The Abu Dhabi-based Al Dahra International Investment LLC is planning to invest about Rs 112 crore (US$ 18.88 million) in Kohinoor Foods Ltd (KFL) through equity shares allotment on a preferential basis.
Al Dahra’s investment in Kohinoor Foods is second such instance of a West Asian firm investing in an Indian rice company. Recently, Hassad Foods, (part of the Qatar Investment Authority, the Sovereign Wealth Fund of Qatar) has announced that it would acquire a majority stake in the Delhi-based Bush Foods Overseas Pvt Ltd, a basmati rice and ready-to-eat products manufacturer.
This trend is of immense significance as West Asia is the biggest market for basmati rice and India has a major market share in the region.
German firm SEA Group is the world's fifth largest living space solution provider. It has debuted in India with an initial investment of Rs 14 crore (US$ 2.36 million), which could go up to Rs 40 crore (US$ 6.74 million) in two years. The company aims to undertake projects in association with big builders, mainly through the franchisee route and offer "creative, durable and high quality home interior solutions to end consumers and corporate clients".
While SEA Group has long experiences in German and other European markets, it has now teamed up with leading manufacturers in Europe like bauformat Küchen to bring high quality services to India.
Meanwhile, US-based Customers Bancorp Inc (CUBI) has plans to infuse US$ 51 million in multiple securities of Religare Enterprises Ltd. Religare is currently aspiring for a banking licence to enter the banking industry. The investments will take place through a combination of primary and secondary market transactions.
The Indian Government keeps making efforts to sustain global investors’ confidence in Indian markets. Prime Minister Manmohan Singh has recently extended his support to the finance ministry and industry department's plan to raise FDI ceiling in telecom to 100 per cent, besides allowing overseas flows into several sectors without prior government approval.
The list of sectors where foreign majors would be allowed to invest through the automatic route includes oil and gas refining, courier and commodity and power exchanges.
Meanwhile, the Central Government has approved 16 FDI proposals recently, in consultation with the FIPB. The proposals amounted to Rs.1646.875 crore (US$ 277.55 million).
Foreign investments fuel Indian financial markets in a big way. Experts believe that India has fared really well over the past few years and the similar macroeconomic trends would continue in 2013. This would result in steady foreign flows that would enhance stock valuations, strengthen investment cycle, and sustain consumption growth (especially at low-income levels). Moreover, portfolio fund flows are anticipated to be higher in 2013 than those in 2012, on the back of Government reforms like passing bills that would escalate foreign investment limits in insurance, having a uniform goods and services tax, and reconciling subsidies.
Following the decisions taken in September 2012, the Government is also expected to further relax the FDI regime in sectors such as telecom and defence. India is anticipated to need about US$ 1 trillion from 2012-13 to 2016-17 to fund infrastructure development such as ports, airports and highways to boost growth. A relaxed FDI framework would smoothen the process undoubtedly.
Exchange Rate Used: INR 1 = US$ 0.01685 as on July 16, 2013
References: Media Reports, Press Releases, Press Information Bureau